Malaysia to maintain stronghold in global sukuk market

12/02/2013 07:33 AST

Malaysia is expected to maintain its stronghold in the global sukuk market in 2013 with the continued development of various infrastructure projects under the Economic Transformation Programme (ETP) to fuel new capital demand, Ratings Agency Malaysia (RAM) says.

"We believe it (Malaysia) can retain its dominant position (in the global sukuk market). With strong legal, regulatory infrastructure, Shariah framework and innovative solution, it will help Malaysia retain its position," said RAM Rating Services Bhd CEO Foo Su Yin told SunBiz.

Foo said Malaysia's dominant position in the global sukuk market was driven by its ample liquidity coupled with favourable regulatory framework for Islamic finance in the country, which supports the growth in the corporate bond market.

In 2012, she said the total issuance of corporate bonds in Malaysia was RM120.03 billion, of which conventional bonds totalled RM48.3 billion while sukuk RM71.7 billion.

Foo said RAM estimates a gross issuance of up to RM100 bilion in corporate private debt securities, while another RM90 billion to RM95 billion worth of bonds are expected to be issued by the government this year.

She said the authorities' supportive fiscal stance and improvements in the domestic business environment will continue to stoke market activity.

Asked whether the sukuk issuance will be as big as last year, Foo said there will be some moderation but growth will be good.

According to her, the growth in debt issuance last year reflected the country's relatively strong economic performance. Low inflation, accommodative interest rates and continued high levels of liquidity both locally and externally, had also ensured stable demand for ringgit denominated bonds throughout the year.

"Malaysia is expected to maintain its robust economic performance this year and this will provide sufficient support for the sizeable quantum of private debt issues," she said.

Foo said RAM expects the Malaysian economy to expand 5.3% in 2013, before accelerating to 5.8% in 2014 supported by robust demand and a recovery in the external environment.

In a recent statement, Securities Commission said the Malaysian capital market raised a record RM145.9 billion in funds through corporate bonds and initial public offerings in 2012, 89% higher than the RM77.2 billion raised in 2011.

It said a total of RM123.8 billion worth of issuance was made in the corporate bond market last year. This represents the highest amount raised to date with sukuk issuance amounting RM97.5 billion or 79% of the total bond issuances.

"If you look at the global perspective, we still dominate the whole market at about 69.7%," said RAM Rating Islamic finance ratings head Zakariya Othman.

He said this dominance can be attributed to the confidence bond investors have in Malaysia.

Malaysia is one of the few countries that makes it mandatory for sukuk and other debt papers to be rated.

Zakariya said besides having the legislative framework to govern Islamic finance the government also emphasises on education, with more and more universities offering Islamic finance courses.

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